Is the Price ever Right ?

For me, Yes ! Just the once . I married one . A Price that is .Julia’s maiden name is Price.

For the rest of the commercial world ‘Pricing’, is probably the simplest, yet pardoxically the most complex part of the equation. You buy something for X and sell it for Y. But how do you know if X or Y are the correct value. From the manufacture of the product right through to the consumer, we are never really sure if it is the right price.

Vast tomes have been written about Pricing Strategies. To illustrate I thought a really confusing diagram would help.

Found on Linkedin, not sure of the exact source

I think the complexity can be better shown with the example of a Watch. For fifty quid (for non UK readers that is £50) you can buy a reasonable watch which will tell you the time , date if you want and might even be waterproof. For £50,000 you can buy a watch which will tell you the time , date if you want and might even be waterproof. So why spend £50,000. There is an argument for jewellery, ascetics and of course vanity . Yet in Northern Europe, we spend most of our times with our arms covered up, so nobody sees it, seems a bit pointless. When they are uncovered you are in danger of having your arm chopped off , if you are mugged . The other arguments are ???

Bizarrely, there is only a multiple of approximately 10 when considering a Ford Focus against a Rolls Royce( £15,000 vs £150,000) where the differences are some what more obvious. What it illustrates is that the process of pricing is not that straightforward. If the Ford Focus had exactly the same spec as the Rolls, and was 20% cheaper, the price would still not be right. But that doesn’t work for a watch for most onlookers a £50,000 watch may look and function in exactly same way as a £50 watch.

There will be many of us who have entered into successful negotations for a siginificant contract, being content with the price achieved, only to be find later on that it does not stop there. Please note I have not said buying or selling . With selling , post negotiations, you can be faced with retrospective discount requests, marketing contributions , advertising allowances, special promotional prices for a period. Making your original Right Price seem rather less Right. If you are buying, you can suddenly be faced with oh that wont actually work without that you will also need contractual support …. the running costs for this model are actually a lot higher for this cheaper model….

Whatever level in the chain(product or services) you are, the decision making process in reaching a selling price is very similar. How much does it cost me? How much does it cost me to sell it? What margin would I like to make and what is achievable ? The first two processes are fairly straight forward . The Third is where the real complexities lie.

I am no longer surprised when a retailer says to me

They walk into my shop , look around ask for the price, then go onto their phone and walk out saying ….Thanks I will go home and think about it…That means they immediately buy it on the internet….I am fed up being a shop window for the Internet

What they don’t do is engage. They dont enter into a conversation like asking what price have you seen ? Is there a half way compromise ? Can we offer an additonal complementary product ? By not engaging and seeking a compromise you have not only lost a sale but more importantly you will have lost customer for ever. Your compromise which would undoubtedly mean a loss in margin, by not achieving the right price but you have retained a customer who has achieved their right price and will probably come back again. If they don’t, you will have at least made some contribution to your overheads and put cash through the till.

Simple Customer Engagement Diagram (author – Simple Me)

When buying , I think the process is altogether more complex. Most of your thought process will be about quantifying the value of the product or service to your needs . These are some of the many possible considerations….

Even though this price is more than I wanted to pay , I cannot get it elsewhere and I need it now

This supplier is charging more but they provide a much better service

Can I be sure this lower price is exactly the same item

There is not the time to seek other prices

Whether buying or selling, I think the only indication for the price being right is…

Does the sale/purchase of this product/service meet my current values and expectations ?

If the answer is a clear Yes, then perhaps the Price is Right..(for you,at this moment in time)

Or alternatively find a partner for life with the name Price.

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